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Health Resources Fdn. v. Dept. of Health





APPEAL from the Circuit Court of Cook County; the Hon. NATHAN M. COHEN, Judge, presiding.


This appeal brings before us the extended efforts of Health Resources Foundation, an Illinois not-for-profit corporation (plaintiff), to obtain a permit from the defendants, Department of Health of the State of Illinois (Department) and the Director of the Department, Joyce C. Lashoff, M.D. (Director), for the establishment of a hospital in Matteson, Illinois. The circuit court entered an order reversing the Department and directing issuance to plaintiff of an initial permit for establishment of the hospital nunc pro tunc as of December 18, 1973. The final order required defendants to accept plaintiff's construction plans within 30 days, provided "said plans meet all applicable building codes." The trial court also ruled that the requirements of the Illinois Health Facilities Planning Act (Ill. Rev. Stat. 1977, ch. 111 1/2, par. 1151 et seq.), do not apply to plaintiff's license application. The defendants have appealed.

In this court, defendants urge that the complaint originally filed by plaintiff in the circuit court should have been dismissed for failure to exhaust administrative remedies; after the Department had rendered a final decision plaintiff's sole remedy was administrative review; the decision of the Department denying the permit is supported by substantial evidence and is not against the manifest weight of the evidence; Rule 1-1.4(a) of the Department is valid and, even if the rule is invalid, the order appealed from was improper in granting nunc pro tunc relief and in ruling that the Health Facilities Planning Act is not applicable to plaintiff.

In opposition, plaintiff urges that irreparable harm would have resulted to plaintiff from further pursuit of administrative remedies; the Administrative Review Act was not plaintiff's only remedy; Rule 1-1.4(a) was vague and was applied to plaintiff in an arbitrary manner; authority of administrative agencies to make findings is subject to judicial review; the record shows that Rule 1-1.4(a) was complied with by plaintiff and the Health Facilities Planning Act does not apply to plaintiff's application.

A summary of the litigation is necessary. Plaintiff was desirous of obtaining a permit from defendants for establishment of a hospital in Matteson. The permit is required by the Hospital Licensing Act (Ill. Rev. Stat. 1975, ch. 111 1/2, par. 142 et seq.). In February 1973, plaintiff requested the Department to transfer to plaintiff an unused permit for this same area, which had been granted to Lutheran South Hospital in 1965. This request was denied. (Note Ill. Rev. Stat. 1975, ch. 111 1/2, par. 147(a), prohibiting such transfer.)

On December 18, 1973, plaintiff filed application with defendants for issuance of its own permit. There was correspondence and other communication between the parties throughout 1974. A great deal of complicated financial data and other information was requested of plaintiff. We note that plaintiff maintains this delay was due to the arbitrary and discriminatory conduct of defendants. Defendants urge that any delay was caused by plaintiff's failure to furnish exact information and by changes made in financial information previously furnished.

In July 1974, plaintiff filed suit against defendants in the United States District Court for the Northern District of Illinois. Plaintiff's position was that defendants had arbitrarily denied plaintiff its civil rights. The District Court "found abstention to be appropriate * * *" and dismissed the cause without prejudice. Health Resources Foundation v. Illinois Department of Public Health, No. 74 C 1832 (N.D. Ill., filed Nov. 4, 1974) (mem. op. at 4).

Pursuant to authority granted in the Hospital Licensing Act, the Director has promulgated rules and regulations to aid in implementing the provisions of the Act. (Ill. Rev. Stat. 1975, ch. 111 1/2, par. 151(c).) Until May 12, 1976, Rule 1-1.4(a) provided in part:

"The financial resources available to provide for the total project costs must consist of a minimum of 40 percent unborrowed equity and no more that 60 percent of indebtedness."

It is undisputed that on May 12, 1976, the Department modified these requirements by reducing the equity required from 40 percent to 20 percent. However, defendants urge that the 40-percent requirement remains in effect as to plaintiff since this was the requirement in effect at the time plaintiff's application was considered. Defendant further contends that plaintiff failed to meet the 40-percent equity requirement and therefore the denial of its permit was proper.

On August 5, 1975, plaintiff filed a complaint in the circuit court seeking injunctive relief and a declaratory judgment that Rule 1-1.4(a) of the Department, as applied to plaintiff, was arbitrary and discriminatory and that plaintiff should not be required to comply with the Health Facilities Planning Act (Ill. Rev. Stat. 1975, ch. 111 1/2, par. 1151 et seq.). Up to that date no formal administrative hearing had been held by defendants regarding plaintiff's permit application, which had been pending since December 18, 1973. Defendants filed a motion to strike and dismiss the complaint on the grounds that an administrative remedy did exist and that the Administrative Review Act was plaintiff's exclusive remedy. After denial of the motion, defendants filed an answer together with affirmative defenses pertaining primarily to limitation of plaintiff's remedy to administrative review.

During the pendency of the court case, an administrative hearing was commenced by defendants. As directed by the circuit court, plaintiff attended and participated in these hearings. On December 10, 1975, after conclusion of the hearings, the hearing officer filed a report which included his findings of fact. He found that plaintiff's initial application for a permit indicated construction costs to be $22,650,000. He then determined that under the 40-percent rule plaintiff was required to have an unborrowed reserve of $8,600,000. *fn1 The hearing officer also found that the cost of the project had risen to $32,800,000 "and the equity required would be increased correspondingly." Plaintiff had advised the hearing officer that the increased equity "could not be furnished." It was accordingly recommended that plaintiff's application for permit be denied.

In his report, the hearing officer also commented upon the confusion that had resulted from the Department's failure to spell out the basic requirements of Rule 1-1.4(a). He found that the "Department must assume some responsibility * * *" for this situation.

On December 23, 1975, the Director approved the hearing officer's report and noted that plaintiff's initial application showed a total project cost of $31,500,000, but that on April 4, 1974, plaintiff had revised this estimate to $22,650,000. The Director further asserted that plaintiff's documentation of the sources of funding, which it submitted to the defendants on October 3, 1975, indicated the total project cost to be $32,800,000. The Director also found that plaintiff claimed "$9,455,000 as unborrowed equity." Of this amount, the Director accepted $8,055,000 rejecting $1,400,000 as being restricted to nonconstruction uses. The Director also found that plaintiff's project was to be financed in part by a $30,000,000 bond issue which ...

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